Thursday, July 07, 2005

Empire Building

Tom Brown of absolutely blasts Bank of America CEO Ken Lewis for doing the MBNA deal here and here. Very entertaining stuff. And something that should be said more often:

"The individual running your company, Kenneth D. Lewis, is an egomaniac set on enriching himself entirely at your expense, by using your equity (and, employees, by putting your jobs at risk) to cobble together as large a company as he can get away with. Ken doesn’t care how unwieldy your company is. Or what businesses it’s in. Or how fast it grows, or how profitable. He only cares that it be big. For in Lewisland, big makes for lots of CEO goodies, like corporate jets, fat options deals, and multi-million dollar “appreciation awards.” Big provides the cover to screw your shareholders in broad daylight—which, come to think of it, is exactly what I believe Kenny boy has been doing since he became CEO of BofA in 2001. Guess what? It’s only going to get worse."

Reminded me of a bit from Berkshire's 1981 annual report:

We suspect three motivations - usually unspoken -
to be, singly or in combination, the important ones in most high-
premium takeovers:

(1) Leaders, business or otherwise, seldom are deficient in
animal spirits and often relish increased activity and
challenge. At Berkshire, the corporate pulse never
beats faster than when an acquisition is in prospect.

(2) Most organizations, business or otherwise, measure
themselves, are measured by others, and compensate their
managers far more by the yardstick of size than by any
other yardstick. (Ask a Fortune 500 manager where his
corporation stands on that famous list and, invariably,
the number responded will be from the list ranked by
size of sales; he may well not even know where his
corporation places on the list Fortune just as
faithfully compiles ranking the same 500 corporations by

(3) Many managements apparently were overexposed in
impressionable childhood years to the story in which the
imprisoned handsome prince is released from a toad’s
body by a kiss from a beautiful princess. Consequently,
they are certain their managerial kiss will do wonders
for the profitability of Company T(arget).

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